Australia | Sep 06 2011
By Greg Peel
“Beyond the near term, growth is still likely to be at trend or higher, unless the world economic outlook continues to deteriorate.”
So will it? Well that's the question no one, including the RBA, can really answer at this point. In its monetary policy statement this month the central bank acknowledged that, “At this stage, little evidence is available to gauge any effects of the European and US problems on other regions”.
We recall that the RBA's last policy statement was issued in early August at a time when Spain and Italy had become the latest targets of sovereign bond selling and the US Congress was locked in stalemate over its debt ceiling. It was after the meeting that S&P downgraded US debt and pandemonium broke out. Although markets did try to bounce back in between, as of today European and US issues still dominate global markets and threaten to steamroll what might be a surprisingly positive Australian GDP result tomorrow.
In August, the RBA noted global growth forecasts for the next couple of years were still at or above long-term averages, but “downside risks have increased as concerns have grown over the outlook for the public finances of both Europe and the United States”.
In September, the board notes, “the uncertainty and financial volatility is reducing confidence and may result in more cautious behaviour by firms and households in major countries. A number of forecasters have scaled back their global growth estimates over the past couple of months”.
As for the Australian economic outlook, well that's exactly the same in the September statement as it was in the August statement – very high commodity prices; China solid; very high terms of trade; strong national income; strong resource sector investment – everything that has Glenn's trigger finger itching like hell for a rate rise. Fortunately the weaker non-resource sector and the strong Aussie are acting as a bit of an offset, which seems to allow the RBA enough breathing space in which to leave rates on hold as it watches what transpires offshore.
If it weren't for the cautious consumer, one gets the feeling the RBA might be saying “The rest of the world be damned, we're hiking”. Because there is absolutely no sense of real concern, of any “Omigod it's Lehman all over again!” panic from our central bank.
One presumes Glenn Stevens might be assuming his US counterpart is not going to fanny about this time with the ol' QE, whatever form that may take, such that the US end of things should be held up. As to whether or not he feels the same about the eurozone, which at this rate would be lucky to last the rest of the year as a “zone”, is not clear. All we know is things look positive enough for now unless soon they don't, as far as the RBA is concerned.
So we're on hold, still.
